From the coffee hills of Bugisu to the dairy plains of Mbarara, the farmlands are booming, driving exports, creating jobs, and feeding millions.
Yet, amid this growth, one question lingers: why does Uganda Revenue Authority (URA) collect almost nothing from a sector powering nearly a quarter of the economy?
The URA Guide to Taxation of the Agricultural Sector (2022/2023) indicates that agriculture contributes 23.8 percent of Uganda’s GDP but less than 1 percent of total tax revenue.
It’s a paradox that raises a bigger question: has URA failed to tax agriculture, or has the system failed URA?
Stuck in the past
Part of the problem dates back to 1997, when the Income Tax Act exempted ‘income derived from farming, animal husbandry, and fish farming’.
The goal was noble – to protect smallholders who dominated the post-war rural economy.
But the landscape has changed. Today, agriculture includes large-scale exporters, investors, and processors with turnovers in the billions, all operating under the same exemptions designed for peasant farmers. That gap has allowed the rich to benefit from a policy meant for the poor.
Yet the guide that had been built to help structure proper mechanisms to tax agriculture and associated industries is gathering dust.
URA estimates that government loses between Shs500b and Shs1 trillion each year due to agricultural exemptions and informal operations.
Agriculture may employ up to 70 percent of Ugandans, but tax collections remain dismal.
Out of millions of participants, only 38,528 agricultural taxpayers are registered, a mere 4 percent of URA’s total taxpayer base.
Of these, 96 percent are in crop and animal production, and only 2 percent each are in forestry and fisheries.
In many districts, entire agricultural value chains, from produce buyers to exporters, operate outside URA’s records, yet the law requires every business operator to have a Tax Identification Number.
The situation is worsened by creative accounting, with several agribusinesses classifying their transport, processing, or export activities as ‘farming’ to claim tax exemptions.
URA calls this the ‘loophole economy’, where tax-free farming becomes a disguise for tax avoidance.
The result is a distorted system where major exporters of coffee, tea, and fish, the top foreign exchange earners, pay far less tax than smaller industries like manufacturing or retail.
Little or almost no oversight
The tax regime has been generous to agriculture. Inputs like tractors, fertilizers, seeds, irrigation systems, refrigerated trucks, and dairy equipment are all VAT and duty-exempt.
These incentives sought to modernize farming, but have also opened loopholes for abuse. Some companies import machinery tax-free for ‘farming,’ only to lease it out commercially.
But the issue becomes more delicate because of politics. With most Ugandans reliant on farming, any proposal to tax agriculture is branded anti-poor.
In the Guide to Taxation of the Agricultural Sector, URA concedes that reforms have faced ‘strong resistance and misunderstanding’. But has managed to push through some changes even as some remain unimplemented.
In the Guide URA notes, it is expanding registration under the Taxpayer Registration Expansion Programme and linking commercial farmers to digital tracking systems such as Electronic Fiscal Receipting and Invoicing (EFRIS).
URA also proposes withholding taxes at export points, starting with coffee, tea, and fish, to capture large-scale players without burdening subsistence farmers, which it says would be ‘a balance between fairness and feasibility.’
At the weekend, Moses Kaggwa, the Ministry of Finance acting director of economic affairs, said government and the entire value chain were reviewing tax policies to find a workable approach for taxing agriculture.
‘The review aims to provide a clear understanding of the modalities and basis for taxing the sector,’ he said.
The government invests close to or more than Shs2 trillion in agriculture annually, but the returns, as noted by Secretary to the Treasury Ramathan Ggoobi, are negligible in terms of taxes.